Transformation of the “Sogo-Shosha” in the IT Age / strategies for the successful eMarketplace — Summary of the final report from Japan Foreign Trade Council, Inc. (JFTC) Special Research Project, “The IT Revolution and Tomorrow’s Trading Firms” Behind the expression “that’s not how wholesalers do business” is the implication that good business deals cannot be made without the cooperation of wholesalers. This derives less from vested interests or power relationships and more from the nature of the trading firm as a total solution provider which holds many cards and is in a position to add value to transactions for all parties to them. In short, it makes little sense to ask whether trading firms belong to the old economy or the new one. The IT revolution may be anticipated to weed out not intermediary businesses per se but only those which fail to add sufficient value in the transactional chain. The point is, instead, to make a fundamental redefinition of the role of intermediaries or go- betweens in network transactions so that it matches the new digitized schemes, reclarify the kind of value they can add to these transactions, and reproduce this value-adding function within the total value chain of tomorrow’s cyber trading market. Fo r e w o r d Established in 1947, shortly after the end of World War II, the Japan Forei g n Trade Council, Inc., is Japan’s leading association of trading firms. In 1997, as part of its activities to mark the 50th anniversary of its founding, it implemented a special res e a r ch project to view the outlook for trading firms for the first 50 years of the 21st century. Under the leadership of Prof e s s o r Iwao Nakatani, the project findings were compiled into a written report which was published in April 1998 under the title “Shosha no Miraizo” (Portrait of Tom o r r ow’s Trading Firms). This report was widely acclaimed for its on-the-mark reading of external tr ends and its picture of new types of trading firm business for the 21 century painted by the industry itself. Comparison with the actual situation today, t h ree years later, reveals that the forecasts contained in its pages were remarkably accurate in orientation. Ho w e v e r , over the last few years, the world has been changing at a pace far exceeding even the expectations of the report. Application of the Internet has been spreading at a particularly rapid rate. In the spring of 1998, when the Portrait was published, there were already signs on the horizons that the Internet would set in motion landmark change, but few foresaw the “r evolutionary” developments it is igniting in the political, economic, and social spheres alike. Under these circumstances, the Council decided to compile a sister edition of the Portrait upon taking another look at the recent currents in the “IT revolution,” and instituted another project of special res e a r ch under the title “IT Kakumei to Shosha no Miraizo” (Transformation of the “Sogo-Shosha” in the IT Age/ strategies for the successful eMarketplace) in May 2000. The findings are presented in this document, whose publication is, needless to say, a highly gratifying event for all members of the Council. Looking back, just the year in which the project group was in action alone saw a dizzying succession of developments including the plunge of stock quotations for the so-called “dot-coms,” and some observers went as far as to say that the IT revolution was over. There also surfaced some myopic opinion to the effect that it would render trading firms useless because they were essentially middleman businesses. Meanwhile, hardly a single day went by when newspapers did not carry articles about the development of IT business by trading firms. In light of this situation, the publication of a book probing the implications of the IT revolution and trading firm approaches to coping with them is indeed a timely one. Trading firms have an abundance of diverse experience and know-how accumulated through their worldwide network of locations, ongoing communication with an immense pool of clients, and long years of real (as opposed to virtual) business operations. They have built on this foundation by also equipping themselves with sophisticated capabilities in the areas of information technology (IT), logistics technology (LT), financial technology (FT), and business crea t i o n . As the IT revolution proceeds, the role of trading firms as the links between virtual and real business is bound to assume increasing importance. On nu m e r ous occasions to date, trading firms have used their wealth of human res o u r ces and superb capacity for adaptation to turn changes in the business e n v i ronment into chances for further strides. We hope that this new publication will serve to show how trading firms are taking new leaps fo r w a r d by using IT as a powerful tool for boosting their level of capabilities even higher. I would like to express our deep gratitude to Professor Nakatani, who again agreed to provide his able leadership for the preparation of this rep o r t as he did for the Portrait, and to the members of the group, whose enthusiasm and dedicated efforts were steadfastly brought to fruition in the form of this pu b l i c a t i o n . Kenji Miyahara Chairman, Japan Foreign Trade Council, Inc. Transformation of the “Sogo-Shosha” in the IT Age / strategies for the successful eMarketplace Published by Japan Foreign Trade Council, Inc. All rights reserved. Copyright © 2001 by Japan Foreign Trade Council, Inc. This book may not be reproduced in whole or in part, by mimeograph or any other means, without permission. ISBN4-931574-03-3 C0033 ¥500E Domestic price: ¥500 (consumption tax & postage excluded) Address to contact: Japan Foreign Trade Council, Inc. (JFTC) World Trade Center Bldg., 6th Floor, 2– 4–1, Hamamatsu-cho, Minato-ku, Tokyo 105–6106, JAPAN URL: http//www.jftc.or.jp e-mail: [email protected] Members of the JFTC Special Research Project, “The IT Revolution and Tomorrow's Trading Firms”. Iwao NAKATANI, Ph. D Director of Research, Sanwa Research Institute & Consulting (General Manager) Co r p o r a t i o n Professor, Tama University, School of Management & Information Sciences Director, Sony Corporation Seiichi SHIMADA Vice President, Mitsui & Co., Ltd. (Executive Adviser) Akio OKAWARA General Manager, Information Analysis & Research Dept., (M a n a g e r ) Sumitomo Corporation Kotaro SHIOMI General Manager, Information & Policy Analysis Dept., ITOCHU Management Consulting Co., Ltd. Tetsuhide MIKAMO Chief Economist, Economic Research Institute, Marubeni Co r p o r a t i o n Tomohiro OMURA Senior Economist, Global Economics & Industry Analysis Dept., Mitsui Global Strategies Studies Institute Shigetoshi INUKAI Deputy General Manager, Corporate Strategy & Research Dept., Executive Director Center For Economic & International Affairs, Mitsubishi Corporation Satoru TAKABAYASHI Manager, Secretarial Office, Tomen Corporation Tetsuro ITOH General Manager, Corporate Planning Dept., Toyota Tsusho Co r p o r a t i o n Yasuhiro HAYASHI Director, Nichimen Intelligence & Research Kunio NOJI General Manager for IT Strategy, IT Promotion Dept., Nissho Iwai Corporation Keisuke TAKANASHI Executive Managing Director, Japan Foreign Trade Council, In c . Hisao IKEGAMI Managing Director, Japan Foreign Trade Council, Inc. Satoshi ISHIMOTO Deputy General Manager, Information & Policy Analysis Dept., ITOCHU Management Consulting Co., Ltd. Miyoshi KAMIJO Manager, Research & Intelligence Group, Tomen Corporation Toshihiro KAIBARA Group Leader, Corporate PR & IR Group, Toyota Tsusho Co r p o r a t i o n Yutaka TAKAHASHI Director of Board, General Manager-Planning & (Chief Coordinator) Coordination, Japan Foreign Trade Council, Inc. Yukio HIRAO Deputy General Manager, Planning & Coordination Group, (C o o r d i n a t o r ) Japan Foreign Trade Council, Inc. Akiko YASUDA Senior Staff, Planning & Coordination Group, Japan Foreign (C o o r d i n a t o r ) Trade Council, Inc. As of April 1, 2001. Table of contents Fo r e w o r d (by Kenji MIYAHARA, Chairman, Japan Foreign Trade Council, Inc.) Prologue Taking up the challenge of the eMarketplace 1. How real is the IT revolution? ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･1 ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ 2. Historical significance of the IT revolution ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ 2･ ･ ･ ･ ･ ･ ･ ･ ･ ･ 3. Four phases of the IT revolution ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･3 ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ Chapter 1 What the IT revolution means to trading firms 1. Trading firms joining the IT revolution ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･7 ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ 2. The truth about trading firms emerging from history ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ 8･ ･ ･ ･ ･ ･ ･ 3. Trading firm perspectives on the IT revolution･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･1 1 ･ ･ ･ ･ ･ ･ ･ ･ 4. “That’s not how wholesalers do business” — importance of distinctive trading firm capabilities ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･1 4 ･ ･ ･ ･ ･ ･ Chapter 2 Business models for the Internet Age 1. Dawn of an age breaking with the past ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ 1･7 ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ 2. Business process streamlining and information synchronization ･ ･ ･ ･ ･ ･ ･18 ･ ･ 3. “Disintermediation” and “Reintermediation” ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･1 9･ ･ ･ ･ ･ ･ ･ ･ 4. New mediating functions of trading firms ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･ ･20 ･ ･ ･ ･ ･ ･ ･ ･ ･ 5. A bright future for trading firms — the rise of e-trading firms･ ･ ･ ･ ･ ･ ･ ･ 2･0 ･ ･ ･ Chapter 3 Approaches to IT — innovation of